If independent sales organizations aren't willing to shift their business models in the coming years, they'll go extinct in a payments industry bustling with aggressive, agile startups that skip the middleman and go directly to the merchant.

"The problem is whether we as an industry can handle change," says Paul Martaus, owner of Martaus & Associates, Inc., a financial services consulting firm in Arkansas. Martaus presented during the Western States Acquirers Association (WSAA) conference in San Francisco, Calif. on Oct. 9.

There's a ton of emerging technology in the payments industry today and most of these companies, including Groupon and Square, are targeting merchants directly without the help of ISOs. For example, Groupon boasts that it keeps its processing fees low by relying on its internal sales force.

However, other alternative and mobile payments providers have sought partnering with merchant acquirers.

SCVNGR's LevelUp has partnered with Merchant Warehouse and Heartland Payment Systems for their merchant relationships. PayPal has also decided to play nice with ISOs.

"These guys don't want to be banks," Martaus says. Because of the complicated regulatory environment banks have to contend with, payments technology startups are merely looking for a new way to access consumers' existing checking accounts, he says.

Even though the acquiring business is a long-established industry, many of the individuals in the market are excited about the influx of new technological tools to sell to their merchants. Sales agents are now becoming merchant relationship managers, keeping merchants happy by providing big-data tools and other offerings, Martaus says.

Retailers will pay ten times more for customer information than they will for payment authentication, he says. ISOs must find a way to make revenue off big data, he says.

Another area ISOs might have to adapt is the ongoing migration to EMV-chip cards. ISOs are being told to start preparing their merchants for the liability shift in October 2015, but this industry is seeing pushback from merchants that protest the price of implementation despite the anticipated security benefits of EMV, Martaus says.

A longer version of this story will appear in ISO&Agent.

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